Saturday, November 26, 2011

Paul B. Farrell summarizes Gary Shilling

In short, expect a very rough decade for the economy, the market, and the taxpaying public. Here’s Shilling’s history of past cycles that run 15- to 20-year log bull and bear cycles the past 60 years:
1949-1968: 19-year secular bull market
The great Post-WWII expansion: “The 1949-1968 secular bull market was driven by postwar economic growth, fading deflation fears, low inflation, the institutionalization of equity and the resulting leap in P/Es.” For me a great time: high school, Marines, Korea, plus a great education on the GI Bill.
•1968-1982: 14-year secular bear market
Shilling says “inflation caused by huge Vietnam and Great Society spending dominated the 1968-1982 secular bear market as it pushed interest rates up and P/Es and productivity down.” Remember the oil crisis, recession and a long sideways stock market for over a decade. I was on Wall Street with Morgan Stanley working on troubled banks, corporate and developer restructurings. Evaluated the collapse of the Federal New Towns Development Program for HUD. Long recession. No fun for most investors
•1982-2000: 18-year secular bull market
With Reaganomics: “The unwinding of inflation generated the 1982-2000 secular bull market, aided by the consumer spending spree and, finally, dot-com speculation,” says Shilling. And oh how we loved stocks with 30%-plus returns, some even posting 300% annual returns. We went crazy. “This time it was different.” Barbers offered investment advice and neighborhood barbecues were abuzz with early retirement plans.
•2000-2020: Yes, a 20-year secular bear market till 2020
Shilling says “the speculative investment climate spawned by the dot-com nonsense survived. It simply shifted from stocks.” Our retirement, “pension and endowment funds have been increasing their exposure to alternative investments such as commodities, foreign currencies, hedge funds, private equity, emerging-market equity and debt and real estate” in recent years. Yes, the ‘90s insanity did survive, like Frankenstein, transplanted in a new body by the White House, Treasury, the Fed, Wall Street, and our dogmatic, self-destructive conservative politicians obsessed about tax-cuts-for-the-very-rich.
Shilling sees “a secular bear market really started in 2000 and may persist for a decade as a result of slower GDP growth,” yes, persist till 2020 “with 2% to 3% deflation.”
Read the whole post at MarketWatch
Very slow growth 2012 then long bear to 2020
by Paul B. Farrell


Anonymous said...

I really need to learn my 1970s economic history.

Did Great Society spending really drive inflation?

Tom Hickey said...


According to Warren Mosler, inflation was the largely the result of the oil cartel's monopoly pricing and it was eventually broken by natural gas.

Hugo Heden said...

Similar argument from John T. Harvey

SchittReport said...

his name is "shilling"

Tom Hickey said...

Thanks, SR. Fixed.